China to loosen up restrictions in free trade zones

According to sources quoted by The Wall Street Journal, China is considering allowing foreign companies registered in the Shanghai free trade zone to raise capital by selling shares.

This is a departure from how the state-run stock market has operated in the past, as the proposal would allow companies that meet certain criteria to sell shares in a new trading platform. It is unclear when this would go into effect.

The free-trade zone was set up in Shanghai last year in order to spur development of China’s financial services sector, and is seen as a sort of pilot program to test out larger economic changes that could be coming down the pike. In this case, China could allow full convertibility of the Yuan in the free-trade zone, which would let foreign firms raise capital through private share placements and derivative trading.

Before this can go into effect, China needs to determine the rules and structure of the marketplace. But it would represent a great leap forward for the city of Shanghai, which China intends to position as a global financial hub in the near future.

Of course, these changes would only make matters more difficult for U.S.-based companies looking to do business in China. These businesses must take the Foreign Corrupt Practices Act in mind as they navigate the waters of the world’s second largest economy, taking care not to conduct business that may be construed as corrupt.